Local meals, telecom taxes equal bad public policy

As I noted in a previous column, some of the bill’s provisions have merit, such as allowing municipalities to opt into the Group Insurance Commission to reduce health care costs, and giving communities more flexibility in bonding capital projects.

Allowing the Pension Reserves Investment Trust Fund to invest the assets of underperforming municipal pension plans is also worth exploring. However, some modifications are needed to better define what constitutes an “underperforming” plan before I can support it. It is important that we consider the historic performance of each pension plan on an individual basis before deeming it “underperforming.”

Other parts of the bill are not so deserving of support, and should be approached more cautiously. This week, I will highlight a few of these items.

In the governor’s bill, cities and towns are given the option of imposing a meals tax of up to 2 percent at local restaurants, over and above the current 5 percent state meals tax. About 75 percent of the new tax revenues would remain with the municipality, while the other 25 percent would be deposited in a special reserve fund.

This reserve fund would also include a percentage of revenues raised through another local option found in the governor’s bill, one that would allow communities to increase the hotel tax from 4 to 5 percent. Money from this fund would be used to reimburse communities for 50 percent of all property tax abatements approved locally for qualifying elderly homeowners.

While this may sound reasonable, in reality it will produce very little real savings at a time when residents are crying out for substantive relief. In fact, the meals and hotel taxes will make the state even less affordable for the average person.

According to the Massachusetts Municipal Association, a 1 percent increase in the meals tax would generate an additional $307,152 in Stoneham, of which $230,364 would be retained locally. Contrast that with Boston, which would generate $19,485,965 and retain $14,614,473.75.

One could argue that the hotel tax – and to a lesser extent, the meals tax – affects primarily tourists visiting the area from out of state, and not Massachusetts residents. However, that is certainly not true in most communities, where individuals and families will end up paying these taxes.

Under the governor’s plan, the local governing body could decide to impose this tax unilaterally. A more sensible approach would be to require that no meals tax be implemented until local voters have a chance to vote on the issue through a referendum.

The Municipal Partnership Act also calls for new taxes on telecommunications. Under the governor’s plan, companies like Verizon would lose their longstanding personal property tax exemption on utility poles, wires and switching equipment. The industry currently pays $492 million annually in state and local taxes, but would be hit with another $140 million a year in new taxes.

Again, large cities would benefit tremendously from such a move, which would provide Boston with $15,421,687 in revenue. Stoneham stands to gain a more modest $132,425 under this proposal.

What concerns me most about this tax is that any additional costs imposed on utility companies will end up being passed on to consumers in the form of higher telephone, cable and Internet bills. If the current exemption is lifted, Stoneham customers will end up paying more to subsidize the state’s larger cities.

There are other consequences to consider. For example, many businesses within the manufacturing, banking and communications industries are drawn to the state because the personal property tax does not apply to certain equipment and infrastructure. Removing this exemption could put the state at a competitive disadvantage and hurt the economy.

The telecommunications tax represents a “quick fix” solution that will do little to help communities in the long run, especially as the taxed equipment depreciates in value.

With his meals and telecommunications tax proposals, Patrick is essentially trying to push through a series of new taxes in the name of tax relief. That is bad public policy, and one that will result in far more people paying additional taxes than those who will see any kind of real relief.

I believe the state should do everything it can to help local communities reduce their reliance on property taxes. However, adding a local meals tax and enforcing a new telecommunications tax will not solve the problem. It will only make Massachusetts more unaffordable for residents and businesses.